A few more logs went into the bonfire of Elon Musk’s vanity project in the past 36 hours.
At least four top executives resigned from Twitter, including the platform’s high-profile head of moderation and safety. Musk suggested to employees that his new plaything might go bankrupt sooner rather than later. The Federal Trade Commission issued a rare preemptive—and perhaps a bit impertinent—statement of “deep concern” about staffing tumult. And the rollout of Twitter Blue faded to black, at least for now, following an all-too-predictable rash of issues with fake accounts.
For now, though, let’s focus on a particularly interesting part of Musk’s recent comments: the need for subscription revenue and feasibility of getting it.
As multiple media outlets reported, Musk’s first company-wide email to Twitter employees went out early Thursday. In it, Musk said Twitter’s economic outlook is “dire” because the platform relies so heavily on ad sales, which account for about 90% of revenue.
“Without significant subscription revenue, there is a good chance Twitter will not survive the upcoming economic downturn,” Musk wrote. “We need roughly half of our revenue to be subscription. Of course, we will still then be significantly reliant on advertising, so I am spending time with our sales & partnerships teams to ensure that Twitter continues to be appealing to advertisers.”
Musk has moaned about Twitter’s dependence on ads in the past, but the comments crystalized some of his vision for putting Twitter on the path to profitability. Twitter lost $221 million last year on revenues of about $5 billion, and Musk’s leveraged takeover piled about $1 billion in added interest payments onto Twitter. (He hacked away at Twitter’s expenses earlier this month by cutting its 7,500-employee workforce in half.)
But can Musk’s vision for sustainability by subscription become reality? It’s possible, if highly unlikely.
So far, Musk has proposed an illogical—and cannibalistic—model for boosting subscription revenue. He’s started rolling out a $8-per-month subscription system, Twitter Blue, in which users will get a verified “checkmark” on their profile, see fewer ads, and appear higher in replies, mentions, and searches.
The strategy has two major problems.
First, it’s unlikely that a large chunk of Twitter’s 250 million daily active users will pay that much for such an underwhelming package of perks. To reach $2.5 billion in annual revenue—roughly half of Twitter’s revenue last year—about 26 million users would need to sign up. For context, consider that various reports showed only about 100,000 users paid for Twitter’s cheaper pre-Musk subscription system, which included some of the same features.
Second, Twitter could stand to lose money on Blue if it follows through with plans to reduce the prevalence of ads in subscribers’ feeds. As Platformer’s Casey Newton reported earlier this week, citing company sources, internal Twitter estimates show throttling ads would cost the platform about $6 per user each month. On top of that, Apple and Google likely will take a 30% cut of Twitter’s subscription revenues on accounts that signed up for Blue using a smartphone.
For Musk, there’s another, higher-risk approach that’s more likely to generate billion-dollar subscriber revenues: putting Twitter behind a paywall. (Newton reported that Musk has bandied about the idea.) Such a move would be unprecedented, but there’s an outside shot at success.
For a roadmap, look to the New York Times Company, perhaps the closest analogue to a paywalled Twitter. The New York Times provides a primarily text-based product and boasts a loyal following that’s more educated, affluent, and liberal than the general public—just like Twitter. The Times also gave away its content for years before moving to a paywall.
Last year, the Times reached about 8 million digital subscribers, generating $773 million in subscription revenue and $309 million in digital ad revenue. Considering that Twitter’s user base is significantly larger and more international, it’s not completely improbable for Twitter to double or triple the Times’ total. If Twitter could convert a large majority of “heavy tweeters”—an internal designation for the 10% of users who log into the site daily and post at least a few times per week—into paywall subscribers, Musk’s goal could move within reach.
It is, admittedly, a pie-in-the-sky proposition. The most likely outcome of a paywalled approach involves high-profile tweeters fleeing to other platforms, causing a cascade of user losses. In turn, advertising revenue would plummet, destroying the other half of Twitter’s revenue.
“Twitter has been an amazing network for many over the years, and historic users do still love it for the connections it can forge,” social media consultant Paul Sutton told Fortune’s Chloe Taylor earlier this week. “But is it so valuable that those connections can’t be created elsewhere? No. Users will find somewhere else.”
For Musk to pull Twitter out of dire straits, he likely will need to subscribe to a different plan. Given his penchant for switching strategies midstream, he very well could.
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Jacob Carpenter
